PPNM’s/PNM’s - PowerPoint Presentation

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PPNM’s/PNM’s

Date: 29 Dec 2006 Slide2

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OverviewOverviewObjectivesWhy Document Pre-Price Negotiation Memorandum (PPNM)Sample PPNM Format

Price Negotiation Memorandum (PNM)

Conclusion Slide3

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ObjectivesWhy document pricing as Fair and ReasonableWhat is a Pre-Price Negotiation MemorandumWhat is a Price Negotiation MemorandumSlide4

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Why DocumentIt’s REQUIREDFAR 12.209 States …. Contracting Officer (CO) must establish price reasonableness IAW 13.106-3, 14.408-2 or FAR part 15.4 as applicable…

FAR 13.106-3(a)(2)

States … If only one response is received, include a statement of price reasonableness in the contract file

FAR 14.408-2

CO shall … (determine) the prices offered are reasonable before awarding the contract. … Particular care must be taken in cases where only a single bid is received

FAR 15.402

CO shall -- (a) Purchase Supplies and Services from Responsible Sources at Fair and Reasonable Prices.

FAR 15.406-3

CO shall document in the contract file the principle elements of the negotiated agreement.Slide5

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What does the PPNM do?Establishes the Govt’s initial negotiation positionExplains and justifies how the Govt determined the Negotiation Objective and established the Govt Minimum and Maximum negotiation position Identifies contractor data that was or was not relied upon by the GovtIdentifies other Govt data or agency reviews (i.e.,IGE, DCAA audit or DCMA pre-award survey)Primary document to obtain Contract Clearance to enter negotiations

Permanent record of the negotiation

Note: The AF Form 9 is not a pre-negotiation objective – it is the vehicle to set-aside funds for a requirementSlide6

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FAR Principles for the PPNMFAR 15.406-1Pre-Negotiations ObjectivesThe pre-negotiation objectives establish the Govt’s initial negotiation position and assist in the Contracting Officer’s determination of fair and reasonable price. Based on:(a) Contracting Officer’s analysis of the offeror’s proposal,(b) pertinent information including field pricing assistance,

(c) audit reports,

(d) technical analysis,

(e) fact-finding results,

(f) independent Gov’t cost estimates and price historiesSlide7

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DFARS Principles for the PPNM DFAR 215.406-1(a) Also consider(i) Data resulting from application of work measurement systems in developing pre-negotiation objectives; and(ii) Field pricing assistance personnel participation in planned pre-negotiation and negotiation activities

(b) Pre-negotiation objectives shall be documented and reviewed in accordance with Departmental proceduresSlide8

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Contractor System ReviewsEstimating System Review (DFARS 215.407-5) - Allows CO to know the proposal is verifiable, supportable and has documented cost estimates. Required for Large Business $50 million or more for which cost or pricing data were required

Accounting System Review

(FAR 9.105(b)(2), DFARS 253.209-1(E), and FAR 16.301-3)

- Considered as part of determination of responsibility and required for cost-reimbursable contracts, incentive type contracts, or contracts which provide for progress payments based on costs or on a percentage or stage of completionSlide9

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Contractor System Reviews (Con’t)Contractor Purchasing System Review (CPSR) (FAR 44.201) - Evaluation of a contractor’s purchasing of material and services, subcontracting, and subcontract management. Without approved CPSR, consent to subcontract is required for cost-reimbursement, T&M, labor-hour, or letter contracts, and also for unpriced actions (including unpriced modifications and unpriced delivery orders) under fixed-price contracts that exceed the simplified acquisition threshold or 5 percent of the total estimated cost of the contract

Contractor Employee Compensation System Review

(CECSR) and

Insurance and Pension Review

(CIPR) (FAR 42.302(a)(1) and (a)(2)

- Normally delegated to and conducted by DCMA

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Sample PPNM FormatThe Hyperlink below is to a sample format PPNM:

Sample PPNM formatSlide11

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What does the PNM do?Tells a complete story of how final price was reachedExplains/justifies why the final price was fair and reasonableIdentifies contractor data that was or was not relied upon by the Gov’tIs a primary source document for post award audits, terminations, requirements changes, follow-on acquisitions, defaults, etc. Is a permanent record of the negotiation Slide12

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When is a PNO/PNM appropriate?A PPNM/PNM is not used for:A Formal Source Selection where a Simplified Source Selection Report or Performance Analysis Report is usedA competitive acquisition where competition is adequate to support a price fair and reasonable determinationA PPNM/PNM is used for:

A competitive environment when price competition is not adequate - single source

A non-competitive single-source environment when only one price is received and there’s doubt the proposal was submitted with the expectation of competitionSlide13

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FAR Principles for the PNMFAR 15.406-3Documenting the negotiation - PNM shall include the following:(1) Purpose of the negotiation(2) Description of the acquisition

(3) Name, position, and organization of each person representing the contractor and the Gov’t

(4) Current status of any contractor systems

(5) If cost or pricing data was not required, the exception used and the basis for itSlide14

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FAR Principles for the PNM (con’t)(6) If cost or pricing data was required, the extent to which the contracting officer --(i) Relied on the cost or pricing data submitted and used it;

(ii) Recognized as inaccurate, incomplete, or non-current any cost or pricing data submitted;

(iii) Determined an exception applied after data was submitted; therefore, not considered cost or pricing data

(7) Summary of the contractor’s proposal, etc Slide15

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FAR Principles for the PNM (con’t)(8) Most significant facts or considerations for the pre-negotiation objectives (9) Discussion and quantification of the impact of direction given by Congress, other agencies,

(10) Basis for profit or fee and the profit or fee negotiated

(11) Documentation of fair and reasonable pricing

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DFARS Principles for the PNMDFAR 215.406-3 Documenting the negotiation.(a)(7) Include principal factors of pre and post-award contract audits and other advisory reports(10) The documentation—(A) Must address significant deviations from the pre-negotiation profit objective;

(B) Should include the DD Form 1547, Record of Weighted Guidelines Application (see 215.404-70), if used, with supporting rationale; and

(C) Must address the rationale for not using the weighted guidelines method when its use would otherwise be required by 215.404-70.Slide17

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Bottom Line

Fair and Reasonable

Min

.

Max

.

PPNM’s =

where you are,

how you got there,

where you want to be

AND justify

why you feel that is where the Government should be

. Summarize the Govt’s position on the contractors proposal, what is acceptable and what isn’t, and why

PNM’s = Final pricing reached during negotiations, should be fair and reasonable to the Govt and the contractor, be supportable with the information presented in the PPNM and be based on pricing/cost analysis performedSlide18

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ConclusionPPNM and PNM should clearly convey:Purpose of the acquisition and type of contractWhat the Gov’t IGE and contractor proposal presentedWhat data the Gov’t looked at during it’s review

What our negotiation objective (including profit or fee) was and how we got there prior to the negotiation

Where we ended up after negotiations were complete and why the Gov’t felt each point was fair and reasonable Slide19

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Additional ReferencesIG 5315.406-3 Pricing of Subcontract Proposals FAR 15.406-1FAR 15.406-3DFAR 215.406-1

DFAR 215.406-3

Weighted Guidelines

DFAR 215.404-70

DFAR 215.404-71